Netflix turns to delivering films digitally

Sunday

May 25, 2008 at 6:00 AM

SAN FRANCISCO --- Preparing for the eventual extinction of its DVD-by-mail rental service, Netflix Inc. is introducing its first solution for subscribers who want entertainment delivered directly to their television sets with just a few clicks on a remote control.

The breakthrough comes in the form of 5-inch-by-5-inch device tailored for a year-old service that uses high-speed Internet connections to stream more than 10,000 movies and TV shows from Netflix's library.

Although it's provided at no additional cost to most of Netflix's 8.2 million subscribers, the streaming service has had limited appeal so far because it doesn't include the latest movies and couldn't easily be watched on anything but a personal computer.

At $99.99, the Netflix set-top box is priced like a DVD player and is just as simple to hook up to a television. A high-speed Internet connection can either be plugged into the box or the device can pick up a wireless signal.

"We think this is something that offers a big value at a low cost," said Reed Hastings, Netflix's chief executive officer.

The Netflix box, made by Silicon Valley startup Roku Inc., is the first of several devices that will pipe Netflix's streaming service to TV sets.

Mr. Hastings is confident that the demand for DVD rentals will remain strong for at least several more years, partly because movie studios aren't ready to fully embrace digital distribution.

As technology makes it easier to rent and buy movies within a few minutes instead of waiting for them to be delivered through the mail, Mr. Hastings realizes his Los Gatos, Calif.-based company won't survive unless it evolves.

That's why Netflix has poured more than $40 million into its streaming service, called Watch Instantly, and is now trying to urge its subscribers to use it more frequently even though it doesn't generate more revenue.

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